The occasion was a global investment house delivering a briefing on the outlook for Australia. The timing, coinciding with the first major shakeout on Wall Street in two years, couldn’t have been worse.

Key points:

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry starts today in Melbourne

Royal Commissioner Kenneth Hayne must deliver an interim report within seven months

Justice Hayne will face a challenge managing the sheer volume of complaints and submissions

As with any discussion of the Australian investment landscape, the conversation soon turned to banks. That’s not surprising. Our biggest company is a bank. Between them, our banks account for more than a third of the total market.

Despite all the recent controversy, the endless scams and scandals, the multiple court cases, official reviews and inquiries culminating in the recently announced royal commission, the consensus was that Australian banks were a screaming buy. They were undervalued.

"We see the royal commission having little impact," one speaker noted without a hint of irony or malice.

"Thankfully, it’s very narrowly focussed."

And with good reason.

The Turnbull Government, having been forced into the embarrassing situation of only calling the inquiry after the big four banks gave the thumbs up, is well aware of how these things can take on a life of their own.

A tight deadline

Perhaps the best example was the Costigan Royal Commission or, as it was officially known, the Royal Commission on the Activities of the Federated Ship Painters and Dockers Union in the early 1980s.

Urged on by the then premier news magazine, The Bulletin, part of the Packer media stable, the commission initially uncovered widespread criminal activity within the union.

But after several years, it shifted focus to the big end of town after it unearthed widespread tax evasion through what was known as Bottom of the Harbour schemes. In the process, it implicated media magnate, the late Kerry Packer who strenuously denied all allegations, many of which later were proved to be untrue.

The bank royal commission, led by former High Court Judge Kenneth Hayne, which kicks off today has been kept on a tight leash. It must hand down an interim report by September 30 this year, with its final report due on February 1 next year.

That’s seven months for the interim report and less than a year to have the whole thing done and dusted. The recently completed royal commission into child sexual abuse ran for six years.

Given the sheer volume of plaintiffs who have sued our financial institutions in recent years through class actions and the myriad victims of predatory lending, it’s going to be a tall order to even scratch the surface across the broad range of victims from banking, insurance and superannuation.

That’s not to suggest Justice Hayne will go soft. A retired judge gets just one chance at a royal commission and most want to make their mark. That’s why the banks and the federal government stridently opposed its establishment.

Why pick on the banks?

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Banks are core to our financial system and our economy. But they are involved in the riskiest of all businesses, with a small amount of equity standing in the middle of vast quantities of debt, a point not readily understood by many in the community.

That makes them at once enormously powerful and extremely vulnerable. While integrity and transparency are essential for an efficient system, any revelations of transgressions that unsettle an institution can destabilise the entire system.

Perversely, that can foster a culture of secrecy within individual institutions and the industry more broadly.

Banking has changed in the past 40 years. Deregulation of the financial system, from the 1970s on, has helped turbocharge economic growth, initially in the developed world that quickly flowed through to developing nations. Witness the transformation of China and much of South East Asia.

But it hasn’t been without cost. The rapid lift in debt to fund that growth has added to instability in the global economy with a series of major financial market crashes almost every decade since 1987, culminating in the global financial crisis in 2008.

In almost every case, irresponsible lending was the root cause with lax lending standards and a failure to properly asses risk.

In the 1980s, it was a corporate debt boom. A decade later, it was Asian governments. A few years later and it was a plunge into a technology boom on borrowed cash. And in 2008, it was debt pumped out to Americans for housing.

Where banking once was a utility, a service to facilitate the wheels of industry, it now has overtaken those it was meant to service. Banking is Australia’s biggest industry; bigger than mining or construction.

What the royal commission can achieve

There is nothing Justice Hayne can do to unwind that. But the culture of banking, now dominated by sales, incentives and product pushing is certain to once again put the economy in harm’s way at some stage in the future.

What other profession is allowed to get away with that? Imagine the uproar if medical practitioners, lawyers or accountants operated on the principle of delivering or prescribing the product that gave them the biggest kickback?

Little wonder Australian real estate is among the world’s most expensive. Or that household debt now stands at an eyewatering 200 per cent of income.

Studies by investment bank UBS reveal a concerning level of what it terms "liar loans" where lending documents have been falsified with inflated income estimates, the bulk of which come through mortgage brokers.

Australian taxpayers delivered the largest rescue package in history to our banks, almost all of which were unable to refinance their foreign debts, with a $120 billion bail-out via a federal government guarantee.

Justice Hayne’s brief is to focus on misconduct in banking, insurance and superannuation. His challenge will not be trying to unearth wrongdoing. It will be in managing the sheer volume of complaints and submissions in such a short period, particularly given many victims who have been paid off but subject to gag clauses now will be free to come forward.

Opponents to the royal commission have argued that airing such dirty laundry could destabilise our financial system.